Mortgages are trending well below 4 percent, presenting an opportunity for many homeowners to refinance their home loans and save money. In late June, rates fell below 3.75 percent for the first time in three years. According to CNBC.com, nearly eight million Americans are missing out on significant savings by not refinancing their mortgages.
According to mortgage analytics company Black Knight, millions of people could lower the rate on their home loans by 75 basis points. The company said this is the largest pool of homeowners who are eligible to refinance into a lower rate since 2016.
Rates hit a peak of 5 percent in Nov. 2018, and many homeowners decided not to refinance due to the higher rate and other factors such as tighter lending requirements. However, Black Knight estimates borrowers could save over $260 a month if they refinanced their mortgage at current rates. Overall, savings could total $2.2 trillion.
Although most homeowners wait a few years to refinance their mortgage, statistics show nearly 1.5 million borrowers who closed on their loans last year could benefit by refinancing now. Refinances have increased over the past few months as interest rates started to decrease, but people are still leaving their current interest rate alone.
Many of the current refinances are homeowners who are replacing their adjustable-rate mortgages with fixed-rate mortgages. When borrowers refinance their home loans, they can lower their monthly payments and give them access to quick capital if they equity in their homes. Home values have steadily risen over the past several years, and estimates show homeowners have nearly $6 trillion in total equity.
However, home prices have started to slow recently, and it is having an effect on the current available equity. Last year borrowers had $6.06 trillion in available equity, and statistics show people are not tapping into their equity. For example, the first quarter of 2019 only saw borrowers extracting $54 billion in equity from their homes. The number is less than 1 percent of what is currently available.
During the housing crisis in the 2000s, homeowners would extract equity from their homes like it was a personal ATM. When home values plummeted, borrowers found themselves owing more than their houses were worth. Some real estate experts speculate borrowers today may be hesitant to refinance because of what happened during the financial crisis.